REVEALED: Medical cover in a work scheme costs up to eight times more when you leave your job

Private medical insurers are being urged to end a ‘shocking’ premium rise trap for those who wish to continue cover once they leave a workplace scheme.

Employees who retire or are made redundant are usually allowed to keep the health benefit they enjoyed while working – but only at an eye-watering cost.

Research by The Mail on Sunday has discovered that premiums often double, quadruple – or even multiply eightfold or more – for former employees who want to maintain cover with the same provider.

Shocking: Premiums often double for former employees who want to maintain their cover

David East (not his real name) took redundancy last year from his employer, a London-based multi-national company. He had received private health cover for himself, his wife and three children for an annual premium of about £3,000.

David, from South London, wanted to continue with the insurance, including cover for pre-existing medical conditions, to provide peace of mind as he began his new career in self-employment.

But the 55-year-old was shocked when he found out the premium increase he would have to bear.

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He says: ‘I was utterly taken aback when the quote came in at £24,000 – eight times the previous rate. I was flabbergasted. There was no way I could afford this given my move to a new way of working.’

The new premium felt all the more outlandish because the cost had previously been met by the company. He only had to pay tax on the perk, less than £1,500 a year.

Seven steps to reducing the costs of healthcare

1. Add an excess. By adding or increasing a contribution to any claim, premiums can fall by 20 per cent or more. Other options include shared responsibility plans where you pay a percentage of any claim, up to a limit.

2. Consider self-funding for smaller claims. This can prevent premiums being hiked later and protect any no claims discounts.

3. Choose a ‘six-week option’ plan. This reduces a premium by up to 25 per cent but will provide immediate treatment if it is not available on the NHS within six weeks.

4. Remove non-core options such as therapy, outpatient benefits or international cover. Find out what help you can get from your local NHS and then exclude this from cover.

5. Look at friendly society style plans, such as those from WPA, Exeter and CS Healthcare. They may be more expensive at the start but offer some premium stability as they do not rise due to claims experience – although they do rise with age.

6. If married and only one of you has pre-existing conditions, look at separate providers.

7. Check affinity groups. Some offer premium discounts to groups such as farmers or civil servants – though these are starting to disappear for older members.

A similar shock increase in the cost of private medical insurance persuaded Richard Barrow to rethink his cover. When he retired, his insurer Bupa told him his annual premiums would jump from £2,000 to £7,700. In desperation he contacted medical insurance broker Regency Health which managed to rein in the costs.

Brian Walters, boss of Regency Health, says: ‘He could not move away from Bupa due to ongoing cancer treatment, so we had to make the best of a bad situation.’

Walters recommended Richard agree to a £2,000 excess on the policy which would only be payable once in any year he made a claim. This reduced the premium to £4,600, saving a net £1,100, taking into account the excess.

Richard also agreed to have his out-patient cover capped which reduced the premium a further £900. Walters says: ‘The out-patient limit does not apply to cancer treatment or hospital scans. The saving was compelling.’

Consumer groups are outraged that leavers are being exploited by private medical insurers. James Daley, founder of consumer campaign group Fairer Finance, says it is time providers and the Government did more to act.

He says: ‘Sales of policies to individuals are in decline. No wonder when premiums are so steep, especially at a point when people are likely to need cover most as they get older. If more people were encouraged rather than hindered from taking up cover, prices would fall.’

He called on the Government to consider action, such as tax incentives combined with more publicity about the value of health cover and its sister insurance, income replacement. He adds: ‘Employers need to spell out the benefits too, even if they do not pay for the cover.’

Just four million people have private health insurance, three quarters through their employer. Sales of individual plans are falling, with under a million sold each year, according to consultancy LaingBuisson. Sales have not been helped by the recent hike in insurance premium tax. This means a tax of 12 per cent is now applied to premiums when someone renews cover.

The soaring cost of cover stems from the fact that employees in group medical insurance schemes are viewed differently as soon as they depart.

Action: James Daley, of Fairer Finance

Regency’s Walters says: ‘Those in the middle of treatment fare the worst. When they leave an employer-sponsored scheme, their risk is assessed in isolation rather than pooled with other members.’

He adds: ‘If someone is receiving expensive treatment – such as the use of advanced cancer drugs – the policy will likely be loss-making for the insurer, whatever it charges.’

Anyone who wants to continue with their treatment under the terms of the insurance is stuck with their existing provider. Competitors would simply exclude the condition from any new cover they offered.

Alex Perry, chief executive of Bupa Insurance, says that someone continuing with Bupa after the loss of employer-based cover would not have to go through the underwriting process again. This means ongoing medical conditions remain covered.

He explains: ‘We want to make the process convenient and keep cover affordable which is why we give customers the option to continue insurance if they leave their employer.’

How the big four insurers measure up on dealing with group leavers

AVIVA

New premium is based on claims made by the member only within the group scheme (rather than pooled with other members, where costs can be lower). Aviva will allow partners and children to continue with cover in their own right.

AXA PPP HEALTHCARE

Premium will depend on applicant’s answers to their questions, with the biggest price hike if there is treatment planned or pending. Partners and children can continue with cover on their own.

BUPA

New cost based on answers to four risk questions, with the biggest increase if treatment is pending. But Bupa will not allow partners and children to continue with cover on their own, so the main member has to continue as well if dependants require continuity of cover.

VITALITY HEALTH

It assesses an individual’s claims history and places applicants into one of two streams. Those with an uneventful claims history get competitive premiums and a choice of benefits, while those with an adverse claims history are offered a fixed plan at a loaded premium.

The insurer will not allow partners and children to continue on their own.

AXA PPP says it offers leavers ways to cut their premium, such as a voluntary excess.

Marcus Carlton, a London-based financial planner with HFM Columbus, says: ‘Given the evident cost savings to the NHS it is surprising that more is not done to encourage people to take out private medical cover.’

Penny O’nions is a medical insurance specialist at the Onion Group. She says: ‘I would like to see employer cover be portable. If an employee leaves, they could remain in the same insurance scheme without penalty for as long as they wish.’

O’nions has helped the former executive of a large company beat a threefold increase in medical insurance premiums to £9,500 when he retired in mid-2015. She found a policy for him and his wife that saved them at least £2,000 a year.

Nadeem Farid, health expert at Drewberry Insurance, says the premium shock hits retirees most. He says: ‘The average age of members of company schemes is between 35 and 45. But around 40 per cent of the individual market is aged over 65 and, according to insurers, 98 per cent of the average 60-year-old’s premiums are spent on claims.

‘This explains why individual cover is at least twice as expensive as group cover and is part of the reason for the hike people face moving from group to individual cover.’

Statistics also indicate that individuals claim on policies far more than group members. Farid says: ‘The mindset is no doubt “getting your money’s worth”. In reality, making small claims will just pump up the premium when it comes to renewal.’

Some providers offer ‘retiree plans’ allowing employees of larger companies to transfer cover on reasonable terms, but these are in decline. Bupa recently closed some of these schemes, ending cover for those with policies. Farid says: ‘We expect other larger providers to follow suit. This could mean that the cost of a family’s cover jumps from around £7,000 a year to closer to £12,000.’

Continuation plans can be a lifeline for a group leaver in the middle of treatment, but insurers are free to increase premiums and reduce cover as they see fit.

Insurance boss is hit by policy

No one's immune: Stuart Scullion’s annual premiums rose fourfold

Even the chairman of the Association of Medical Insurers and Intermediaries has been caught in the health insurance premium hike trap.

Stuart Scullion, 61, moved from employer to individual private medical insurance last month and saw his annual premium leap fourfold from £900 to £3,600.

He says: ‘I was happy to meet this cost because I have some ongoing issues with my knee. But there are many people who cannot afford to keep paying.’

Scullion believes insurers should do more to encourage rather than deter people from continuing with cover. He says: ‘The NHS is stretched to breaking point. The last thing it needs is more people making demands on it for expensive treatments.’